International Political Risk Alert: Iraq, Russia and Venezuela

WASHINGTON, December 23, 2016 – While foreign policy landmines exist around the world, the most immediate risks for the new Trump administration are Iraq, Russia, and Venezuela.

Military gains against ISIS in Iraq are good news, but the bad news is that the country remains fragmented and buffeted by outside forces. Stability in Iraq is a long way off.

Russia is facing tremendous internal stress – social, economic, and political – and Vladimir Putin knows the best way to distract from internal problems is to find an external enemy. Invading poorly protected neighboring countries with large Russian populations likely looks extremely inviting. Think seismic ripples across Europe and the global community.

Finally, Venezuela is teetering on collapse, stoked by catastrophic economic decisions and an inept and corrupt government. The power elites have no intentions of releasing their grip, setting up a potential crackdown and reinvention of the Chavista principals. Targets for the crosshairs are not only local dissidents but also international corporations in the country.

Iraq: Post-ISIS Violence

As Iraq moves toward clearing ISIS holdings, it faces yet another significant challenge just around the corner: the scramble for territory by the three major ethnic and religious groups in the country. The focus on fighting ISIS temporarily distracted the Shia, Sunni, and Kurds from their own internal discord, but with the terrorists displaced, the real fighting will begin. The internal strife is encouraged by external actors, including Saudi Arabia, Iran, and Turkey.

Kurdish forces have played an extremely important role in the fight against ISIS, and will now look for concessions from Baghdad. Key among those is official control of Kirkuk, a Kurdish-dominated province that also happens to hold massive oil reserves. Baghdad has resisted ceding this territory completely to the Kurds in the past, even shutting down pipelines that transport the oil as a negotiating point.

Meanwhile, Sunni v. Shia tensions will continue to smolder. The Shia v. Sunni feud has deep historic roots, which includes atrocities and violence by each side against the other. Sectarian violence is fueled by outside actors. Iran and Saudi Arabia use Iraq to play out the Shia v. Sunni war for dominance taking place across the region.

Turkey is also entering the fray in Iraq. Not only is it moving against the Kurds, which Ankara views as a real threat to its own survival, but it is also pushing for Sunni dominance in the region.

The security situation will also remain questionable. Terrorists will continue to undermine security, shifting to more traditional guerrilla tactics. Moreover, the short-term success of ISIS will encourage the development of new jihadist groups as well as the likely resurgence of existing groups, such as Al-Qaeda. The sectarian violence will also inflame terrorist activities.

At the same time, a central government will struggle to maintain domestic and international legitimacy. With deep divisions among the groups, any government will face major challenges, including likely allegations of electoral fraud. The role of regional forces will also undercut government autonomy and undermine its authority.

Adding to the explosive mix is the massive destruction from the war against ISIS, infrastructure failing, budget deficits from dropping oil prices, and high unemployment.

Russia: Aggression and Obstruction

The chest-pounding and saber rattling from Russia over the last few years is likely to increase in the near term, as Russia struggles to deal with impending political, social and economic problems. This encompassing weakness spells trouble for the rest of the world.

President Vladimir Putin continues to play the role of international boogey-man, spreading fear and loathing around the world. His latest gems include talking about the potential need to use nuclear weapons, slaughtering civilians in Syria, and placing nuclear-capable missiles near Poland and Lithuania in what appears strikingly familiar to positioning before the annexation of Crimea. Oh, and don’t forget blatantly anti-American issues such as threatening to shoot down any US planes that move against Bashar al-Assad in Syria and apparently supporting hacking regarding the US election.

The problem for Russia is that it is collapsing under its own weight. The economy is shrinking, thanks partially to poor decisions, partially to dependence on oil and gas, partially because of sanctions, and probably mostly because of corruption and incompetence. The government has gone from bloated to obese, with the percentage of GDP that comes from the state now at 70%. Weak institutions remain impotent, stuffed with pro-status-quo Putin-o-crats who thrive on – and stoke – the rampant corruption that rots the state. The government continues to crack down on dissent, the free press, and public discussion. Rather than fight against this trend, many educated Russians are leaving – up to 50% of professionals in some sector.

All this is and more make Russia vulnerable. Like many others before him, Putin is trying to distract the population from the impending doom by creating external enemies and stoking nationalism. Aggression in the name of the Russian homeland, trumpeted by Moscow’s propaganda machine, is effective in gaining support for Putin. After the Crimea annexation, Putin’s popularity reached new highs, despite international sanctions and condemnation.

With Europe focused on the future of the EU and questions about the future role of NATO, Russia may see low-hanging fruit in the form of some of the former Soviet countries.

Over the long term, Russia will be forced to make massive changes. The question is how long that long term is. In the meantime, massive difficulties for anyone doing business with or in Russia are likely. Nationalizations, random takeovers, expulsions, national sanctions and arrests are not far-fetched in Russia and are well become even more likely as the walls close in.

Venezuela: Limping Toward Melt-Down

Venezuela has been boiling for several years. Now, the lid is about to blow off.

The economy has already essentially collapsed, unable to bear the weight of absolutely dismal decisions that have spiraled the country into food shortages and hyperinflation. Low oil prices married incompetent government under President Nicolas Maduro, leading to budget crisis and the heavy cost of social programs. Unemployment is literally skyrocketing. Finally, it seems, the people have had just about enough.

Next year, Venezuela faces sovereign debt payments which it absolutely cannot meet. It will default. And that opens a way for a full-scale free fall both domestically and internationally. As soon as the government can no longer pay its security services, which so far have used whatever force necessary to contain the massive protests, those security forces will simply step aside and usher in chaos.

At the center of the controversy is Nicolas Maduro, hand-picked by Hugo Chavez to lead the country after Chavez’s death. Maybe Chavez has more of a sense of humor than anyone realized because Maduro has been an explosive disaster. Maduro further twisted the already dysfunctional economic and political situation put in place by Chavez, with irrational and unpredictable decisions that led to his defeat in the last general elections.

The situation became dire when oil prices fell. Venezuela is almost completely dependent on petrodollars to fund its grandiose social programs and to prop up the economy. Without that influx, Venezuela has fallen into deep recession. According to the World Bank, more than 80% of Venezuelan goods now suffer shortages because of the lack of dollars to fund imports.

Venezuelans have responded to the crisis by fleeing in record numbers. More than 2 percent of the Venezuelan population already lives overseas, and that number has escalated over the last year. US asylum applications from Venezuela are up 168 percent, according to the Pew Research Center, and border states say they have no real number of immigrants, but describe it as a “flood.”

The Venezuelan opposition, which gained a foothold in government with the last general elections, is vowing to use the economic collapse to oust Maduro and the “Chavista” brand of socialism and replace it with true democracy.

Venezuela’s arbiter of power, the military, is likely watching the situation carefully. The generals have amassed power and wealth under the Chavista government, and are unlikely to sit idly and allow their influence to erode. Moreover, many of them face criminal charges in the United States and would lose immunity if they lose power. To avoid that outcome, they will grip power as tightly as they possibly can.

While the generals grew rich under Chavez, they have cemented their position with Maduro. Because Maduro is weak and not nearly as beloved as his predecessor, he has actively courted the military throughout his administration. As the International Crisis Group noted, “the gradual expansion of military powers in response to the regime’s loss of legitimacy is starting to resemble a slow-motion coup.”

Venezuela’s military is likely to execute a well-orchestrated change of power, where Maduro is recalled, but not until January 10. That puts a new face in charge while protecting military privilege giving the generals more power moving into 2017.

Other Challenges

China, Syria, North Korea and a host of other actors will also challenge the new Trump administration, and a few new trouble spots will almost certainly emerge.

In the world of foreign policy, there is never a dull moment.

 


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